Monday, December 16, 2013

The nominee, John Koskinen, to head the embattled Internal Revenue Service said that, if confirmed, he would launch an inquiry into nonprofit organizations that have lost millions of dollars to financial wrongdoing and failed to disclose the circumstances to donors and law enforcement, according to the Washington Post.

Members of Congress have said they are troubled that accounts of multimillion-dollar losses have come to light through news media reports and not from IRS enforcement actions.

The Washington Post reported this year that it had identified more than 1,000 nonprofit organizations that in recent years disclosed on annual tax returns that they had suffered significant diversions — many of them acts of fraud and embezzlement carried out by insiders at the organizations.

The diversions highlighted in the articles totaled hundreds of millions of dollars. But the newspaper’s investigation also found that, in violation of IRS reporting rules, many of the organizations failed to include in their disclosures the amounts they lost and other key details.

Monday, December 9, 2013

There is much interest in the charitable sector with its hundreds of billions of
dollars in contributions, trillions of dollars in assets and, most recently, the exposure
of an astounding amount of theft. Numerous studies have noted that between
$41-50 billion has ended up in the pockets of those to which it was not intended.

For a multitude
of reasons over the past two decades, we have seen substantial increase in
malfeasance in the nonprofit sector. Instances range from the Baptist
Foundation in Arizona indictment of $550 million obtained by fraud eight years
ago to $100 million theft at the bogus U.S. Navy Veterans Association recently to
thousands at parent-teachers associations to hundreds of thousands of dollars
stolen on a daily basis at small and medium charities.

There are common characteristics,
in no order, that are enveloping the charitable sector to assure that donations
do notbenefit the anticipated beneficiary.

·Billions are taken in fundraising
efforts with agencies only receiving as little as 5% of the money raised.

o A recent example: In just one state tens of millions of dollars are taken by cancer
solicitors. Fewer than 50% of the Charity Navigator breast cancer
charities have rated high for their commitment to accountability and transparency

• Most nonprofits are required by law to file financial statements each year at the state and federal levels. In
my experience, the information is not timely, is incomplete or incorrect either
intentionally or by accident. Incidents of fraud are often omitted or incomplete. Because
these documents are available for public inspection and frequently used in the
decision-making by donors, they are less than transparent. Salaries are
frequently understated. Fundraising expenses are often a guess. Related party
disclosures are very rarely cited.
o A recent example: a thousand examples in the Washington Postarticleamounting to hundreds of millions of
dollars of charity theft;

• The board is often kept in the dark. Most boards are disinterested and disengaged. Many believe that
intentional deception of donors and board members is a common occurrence. In
virtually all instances, the board has had the opportunity to inquire as to
malfeasance but has not done so. Why? There are no consequences. Seldom is the
board held accountable for its lack of fiduciary duty. Many board members are
not full engaged in oversight. Another reason is that the bond between the
board and the executive is strong, based on misplaced trust.
o A recent example: TwoWestern Pennsylvania nonprofit
boards are under the PA. Attorney General's scrutiny for mismanagement of
millions of dollars.

• In some instances, the auditors have not done their due diligence.
Frequently, problems are dismissed by auditors to retain a client. Few
auditors have employed sound fraud-detection audit procedures. An auditor cannot
rely too heavily upon management assurances.
o Two examples: In two instances, the auditor for Baptist settled for
$217 million and the auditor for Roslyn NY schools, upon being charged, closed
his doors.

• The federal law, Sarbanes-Oxley, applies solely to for-profit corporations,
but many charitable organizations have instituted whistleblower policies as well as other
accountability measures. Few have provisions for an employee to complain
directly to anyone other than an insider. In some cases when
instituting S-O, the implementation of policies have worked. Tips from insiders on financial
misdeeds far outpace audits exposures. Sorrowfully, mere adoption of written
policies and practices, however, does not mean they are being used. In most
cases, employees are intimidated or bribed by superiors and therefore no one-steps
up communicate any malfeasance.
• A recent example: The District of Columbia tax office employees were
showered by their supervisor with expensive gifts and remained quiet in a $48
million scheme that lasted decades.

• Internal controls are frequently
lacking in most nonprofits. For those with such controls, implementation is
compromised for the sake of convenience, but seldom triggered.
o An example: The Central Prince George County Community Development
Corporation was forced to revise its internal controls when a board member
embezzled $500,000.

• There is the need to further delineate the roles of managers and governors or trustees. An unbiased set of
eyes from the board on financial matters is critical. Many times this is
overlooked in favor of deferring to the competence, in the world of details, of
the executive and his/her role as chief operations officer. This is a recipe
for disaster.
o A example: The Virginia Farm Bureau found out after it waited 10
years and $2 million before an audit caught an inside attorney
embezzling.

Unregulated charities and all that money has, in fact, spoiled the sector. Most
of us want more vigilance with nonprofit leaders acting more responsibly. This
will strengthen the charitable sector to make it compliant and vibrant.

Friday, December 6, 2013

Nonprofit Imperative has warned donors to be
cautious in giving money to celebrity charities.

A beloved Hall of Fame member
of the Broadcast Pioneers of Philadelphia and former TV sports director Don
Tollefson’s charity solicitations 's have been raising eyebrows...for more than a
decade

Now there is a
multi-jurisdictional criminal probe into the alleged scams in which he was
involved. "It's a monster right now," said Bucks County Deputy
District Attorney Ryan Hyde, who specializes in complex white-collar cases, of
the Tollefson investigation. "We've talked with more than 100 victims.
It's a sizable amount of money."

The questions go way
back.

Tollefson failed to
deliver money to a cancer patient at least 10 years ago after Winning Ways
raised money in conjunction with a player from the defunct women's soccer team,
the Philadelphia Charge, according to a source. None of at least four
charities associated with Tollefson - Winning Ways, One Child Saved, Employ
Young Adults and tixr4kids.com - appears to be registered with the IRS. The
website for One Child Saved has been taken down, but a cached version of the
site says One Child Saved and Winning Ways are 501(c)(3) nonprofits and that
all donations are tax-deductible.

Investigators are trying to determine how some of
that money was spent. Tollefson's off-the-grid charities do not appear to have
filed the paperwork typically required of nonprofits.

“In order for it to be tax deductible at all, they would have to have
an IRS determination," said Greg McRay, chief executive of the Foundation
Group, which assists nonprofits. (source)

Thursday, December 5, 2013

Two Western Pennsylvania nonprofits are tangled up in court, where tax delinquencies and alleged mismanagement of millions of dollars have volunteer board members under Attorney General Kathleen Kane's scrutiny.

Kane aims to oust trustees at Conneaut Lake Park in Crawford County, which failed to pay taxes and keep fire insurance on its Diamond Ballroom, destroyed in a fire in 2007.

In Pittsburgh, the August Wilson Center for African American Culture fell behind on mortgage payments for a $40 million building constructed without a clear revenue plan, ending up in foreclosure.

Among the fiduciary lapses cited in the petition are the board’s failure “to take advantage of business opportunities that would have generated more revenue” and “failure to insure Dreamland Ballroom and The Beach Club,” as cited in a Meadville Tribune article. Should Kane’s petition be approved, the soon-to-be-ousted trustees collectively would be on the hook for a “surcharge” of $1 million to offset some of the expenses associated with a breach of trust—in this case for failing to protect the park’s assets and manage its finances properly.

exposing the crisis in nonprofit
fraud leadership…a crisis of pervasive and monumental waste, fraud, abuse,
mismanagement, and malfeasance throughout the charitable sector which
costs taxpayers and contributors tens of billions of dollars annually;
and,

seeking reforms that will restore
the public’s lost confidence in the sector.

What’s
Included:

Skunk of the Month:

Association of Medical
Colleges; U.S. Navy Veterans Association

Charity Check Up:

Metro. N.Y.
Council on Jewish Poverty

A Thought or Two:

Overwhelming
Evidence of Charity Fraud

Nonprofit News-In Case You Missed It:

Audits; Americans for
Prosperity; Sacramento Public Library…more

Political/Official Chicanery:

MN; NYC; NJ; PA; VA; HI; CA; WA; MT; OK;
MI; CO…more

What Do You
Think?

Why
are there so many charity CEOs who are rip off artists?...“The nonprofit sector
takes in $1.5 trillion a year. It’s the largest nonprofit sector in the
world… And the amount of oversight is pathetic.” (Ken
Berger, Charity Navigator)

“…the sector as a whole can’t afford the
reputational damage from even the hint of fraud.” (Tim
Delaney, chief executive of the National council of Nonprofits)

“…there are still shortcomings with the failure of
groups (of charities) to be completely honest or pursue wrongdoers”
(Washington Post Editorial)

Skunk of the Month…

Skunk of the Month is the twice-monthly designation
made by Nonprofit Imperative, the
organization dedicated to eliminating waste, fraud, abuse and mismanagement in
nonprofits and government. The Skunk of the Month award is given to
charities and government officials who show blatant disregard for the interests
and trust of contributors and taxpayers. This month’s example is:

“They
came to do good and they did very well indeed.”

It Took Seven Years To Uncover This $5 Million Charity Fraud

Since 2005, while working as a $56,000-a-year
administrative assistant, Ephonia

Green
allegedly stole $5.1 million from theAssociation
of American Medical Colleges. Nearly $1.4 million was paid via 74 checks
made out to Green’s bridal business, known as Couture Miss Bridal & Formal,
court files show. At
the association, Green had enough access to key financial systems that she was
able to create fake invoices in the names of legitimate groups that she then
approved for payment, the court files contend. And when the checks were ready,
she had them returned to her, not sent to the vendors, prosecutors charge.

Under that system, a spelling change of just four letters allegedly
netted $3.7 million for Green when she purportedly created nearly 200
false invoices in the name of the well-known Brookings Institution policy
center but deposited the checks into accounts she opened for her own “Brookings
Institute.”

The alleged
embezzlement ballooned starting in 2005, the criminal court files charge, until
Green netted an amount that would be close to 90 times her salary.

A $100 million Charity Thief Finally Convicted

The leader of the bogus U.S. Navy Veterans
Association charity was convicted in Cleveland of stealing from donors.

After a
six-week trial, John Donald Cody, 67, better known as Bobby Thompson, was found
guilty of 23 charges including theft, money laundering, corrupt activity, record
tampering and identity fraud.

The
verdict caps an episode in the life of Cody, a Harvard graduate and former Army
intelligence officer who used a stolen identity to fabricate a military resume
to create a charity ostensibly to aid Navy veterans

The charity
collected an estimated $100 million before it was exposed as a sham in 2010,
when a Florida newspaper reported none the association's officers existed and
office locations were no more than UPS mailboxes. Little of the donated money
helped veterans.

After the
disclosures Thompson disappeared for two years until U.S. marshals, in
Portland, Ore., arrested him, in 2012. Among his possessions was a suitcase
containing $1 million, the newspaper said.

He faces a
minimum of 10 years in prison.

A Charity Check Up:

An Accomplice Arrested In $7 million Charity Fraud

The owner of a Long Island insurance company has
been charged with helping longtime Jewish community leader loot more than $7
million from one of the city’s most influential social service organizations
and pocketing at least $1 million himself, according to a criminal complaint
filed in the case. The insurance company owner, Joseph Ross, was arrested and
charged with first-degree grand larceny and money laundering and other crimes
for what the complaint said was his admitted role in the scheme, which spanned
two decades and targeted the social service organization, the Metropolitan New
York Council on Jewish Poverty. It
appears that investigators have concluded that the amount of money stolen
between the early 1990s and August 2013 was greater than they had believed.

In the initial complaint the total amount of the theft was listed as in
excess of $5 million. But the complaint against Mr. Ross says the total amount
of money stolen was in excess of $7 million.

A Thought or Two:

The Evidence Is In

“The Harvard
University's Houser Center for Nonprofit Organizations suggests that fraud
losses among U.S. nonprofits are approximately $40 billion a year.
"According to a Washington Post analysis of the filings from 2008-2012 ...
of more than 1,000 nonprofit organizations, ... "there was a 'significant
diversion' of nonprofit assets. Just the top 20 organizations in the Post's
analysis had a combined potential total loss of more than a half-billion dollars.” (Source) Need we say
more…?

· Nonprofit leaders need
to issue a “clarion call,” says Cindy Lott, a lawyer who developed and
runs Columbia Law School’s Charities Regulation and Oversight Project and
previously served in the Indiana attorney general’s office. “We need good
regulation. We need it at the federal level. We need it at the state
level. The nonprofit world has become such a big economic engine—employing
millions of people and handling billions of dollars—that it needs a strong
regulatory regime to “protect the charities that are doing it right,” she
says.”

· “Why can’t we have the
equivalent of an SEC for nonprofits?” says Janet Greenlee, an associate
professor of accounting at the University of Dayton who specializes in
nonprofits.

· Since Congress concluded
its hearings, problems with veterans’ charities that are spending little
on programs, or even allegedly committing outright fraud, have continued
unabated. So have reports of other alleged improprieties, but nothing
happened.

· Some critics say the
nonprofit world needs to do much more to call out bad actors, including
expelling them from trade groups. “The charitable community seems loathe
to speak ill of anybody anytime, anywhere,” says Dean Zerbe, a former top
aide to Republicans on the Senate Finance Committee.

· A committee of the
House of Representatives held hearings to explore accusations that some
veterans charities were spending just a trickle of the money they raised
for programs to help veterans or their families…nothing happened

· Nonprofit and policy
experts have, over the years, proposed many ideas to improve the way that
charities are regulated, a task that now generally falls to the Internal
Revenue Service, which monitors tax-exempt organizations, and the states,
many of which require charities and professional fundraisers to register
and provide financial information.

1.While
independent audits serve an important purpose and may prevent potential fraud,
audits rarely detect fraud. Even when an organization conducts an independent
audit or review of its financial statements, the auditors do not guarantee that
the organization is free from fraud.

2.Americans for Prosperity — the main political
arm of billionaire industrialist brothers Charles and David Koch — spent a
staggering $122 million last year as it unsuccessfully attempted to defeat
President Barack Obama and congressional Democrats, according to a Center
for Public Integrity review of documents filed in Colorado. During its previous eight years of existence,
Americans for Prosperity spent a combined $72 million, a review of Internal
Revenue Service records indicates. Tax records show Americans for
Prosperity has received large sums of money from other Koch-connected
nonprofits such as Freedom Partners and the Center to Protect
Patient Rights. Corporate interests, such as the American Petroleum
Institute and tobacco giant Reynolds American, are also among
Americans for Fallen Blue is a
Maryland-based organization that raises money for a police
nonprofit benefiting the families of fallen officers; helping to cover their
funerals, establishing scholarships for their kids and even one day creating a
memorial for those killed outside the line of duty. Center for Public Integrityconfirmed
Fallen Blue is not registered as a nonprofit with the Internal Revenue Service
or with Maryland's Secretary of State, which oversees nonprofits. John Guarnieri who runs the organization tells
ABC2 the expenses accrued by his organization are often more than they bring in
and that while they thought about becoming a "full-fledged nonprofit,”
because of high costs they’ve instead opted to donate what they can to another
group, Safe Call Now. Safe Call Now refused to tell ABC2 if Fallen Blue has
contributed to its organization and in what amount. Their Executive Director
did not respond to a request for additional information through email. Update: The U.S. Department of the Treasury and the
Internal Revenue Service (IRS) issued initial guidance regarding qualification
requirements for tax-exemption as a social welfare organization under section
501(c)(4) of the Internal Revenue Code. This proposed guidance defines
the term "candidate-related political activity," and would amend
current regulations by indicating that the promotion of social welfare does not
include this type of activity.

3.The Sacramento Public Library will be getting a check for
nearly a half million dollars – not in donations, but in restitution. It all stems
from two years ago, when two former employees embezzled close to $800,000 from
the library.

Justice Watch

Judges, prosecutors and others have
coddled criminals convicted of charity fraud in their sentencing…and it is
rampant. All use jail overcrowding and other spurious excuses for lenient
prosecution and sentencing. Restitution is frequently ordered in lieu of
prison, but it is seldom discharged with less than 50% of the criminals even
paying one penny. This result is a free pass for the criminals. (just a few
examples).

1.She has been arrested and charged with grand theft
after investigators say she embezzled nearly $30,000 from the Carl Hill
Galloway Pioneer Club. Just months before, she was charged with grand theft and
unemployment fraud after investigators learned she made over $65,000 while
cashing $11,400 in unemployment checks.

2.Even though David Mau pleaded
guilty to forgery, counterfeit and theft at the ARC of Bismarck (ND), he was
sentenced to no jail time and perform 100 hours of community service.

1.A highly regarded
school principal in Fairfax County and her former finance aide have been
arrested and charged with embezzling more than $100,000 and money laundering.
Update: The principal of a Northern Virginia middle school and her former
finance technician have been relieved of their duties after embezzlement
allegations surfaced.

2.The Aransas Pass (TX) Police
Department has arrested a volunteer firefighter suspected of felony theft of
$22,000 from a nonprofit organization and fraud.

3.The wheelchair-bound former Mid-Peninsula (CA) Water District
worker accused of stealing more than $200,000 to fund a gambling addiction
pleaded not guilty yesterday to embezzlement in her first court appearance on
the alleged crimes prosecutors say went unnoticed for three years until she
left on medical leave.

4.She is not just any city worker either, but the former Chief
Financial Officer for the Oklahoma City Zoo. She is accused of embezzling more
than $10,000

5.The former executive director of a D.C. public
charter school, Nia Community Public Charter School, admitted in
federal court that she embezzled $29,000 in school funds, according to U.S.
Attorney Ronald C. Machen Jr.’s office. He entered a guilty plea to a charge of
theft from a program receiving federal funds is scheduled to be sentenced in
February in the U.S. District Court for the District of Columbia.

6.A former fire captain in
Park City was charged with embezzling more than $30,000. Randy Scott, who is a
former captain in the Park City Fire District, is facing three second-degree
felonies for theft.

7.A federal grand jury
indicted a former supervisor in the Seattle office of the Bureau of Alcohol,
Tobacco, Firearms and Explosives on charges of embezzling $20,000 from a fund
for confidential informants.

8.Jackson County’s (MO)
former court administrator pleaded guilty to embezzling $140,000 in court funds
for her own use while serving as the court’s top non-judicial official.

9.Brimfield's (MA) former
treasurer has been charged with embezzling more than $80,000 from the town.

10.A former Kentwood (MI) Parks and Recreation clerk
will spend 20 months to 20 years in prison after she managed to steal more than
$331,000 from the city, a theft that led to job cuts, according to the
mayor-elect.

11.The former CEO of Compensation Advisory Organization of Michigan
was charged earlier this year after the Michigan Attorney General’s office
received an audit that showed the non-profit company’s finances were not in
line. After investigating, prosecutors say he and his former bookkeeper
embezzled more than $2.6 million from the non-profit. The Compensation Advisory
Organization of Michigan provides administrative and customer service support
for the Michigan Workers' Compensation Placement Facility. He will serve at least the next three years in prison after pleading
guilty.

12.A former administrator with
Huntington (WV) Housing Authority(HHA) haspleaded
guilty to embezzlement from the Shelter Plus Care Program. She embezzled a total of $23,000 from HHA.

Nonprofit
Imperative gathers its information principally
from public documents...some of which are directly quoted. Virtually all cited
are in some phase of criminal proceedings; some have not been charged, however
there is money missing. On rare occasions, there may be duplicates.

Gary
Snyder is the author of Silence: The Impending Threat to the Charitable
Sector (Xlibris, June, 2011) and Nonprofits: On the Brink
(iUniverse, February, 2006) and articles in numerous publications. The book can
be bought at amazon.com,barnesandnoble.com, Barnes and Noble (store)

About Me

Gary Snyder is the author, most recently, of the groundbreaking expose on the charitable sector, Silence: The Impending Threat to the Charitable Sector as well as the often-cited guide on best practices and key concepts, Nonprofits: On
the Brink.

He is the publisher of a
twice-monthly newsletter, Nonprofit Imperative that gives an update on the current status of the
charitable sector.

Snyder is often quoted and frequent contributor to the blog of the National
Committee for Responsive Philanthropy. Snyder twiceauthored the Governance Chapter of the Michigan
Nonprofit Management Manual (4th and 5th editions).

He is a speaker on ethics,
financial and governance matters of the sector. For almost a decade, Snyder is frequently
consulted by Congress and has been quoted in print, broadcast and online media
outlets.